Another Idea to Boost the Economy that Won't Be Done

Mrs Merkel's Runabout: the BMW 320d SE Touring

Cars in Ireland are some of the most expensive in Europe. A BMW 320d SE Touring costs around €43,220k here.  In Germany, the list price is €37,400.  In Spain, €38,900.  In the UK, €35,200 (converted using xe.com) The additional cost is exclusively in taxes, which ultimately seem to make their way back to Germany anyway.  This year, we introduced a new vehicle registration system to accelerate the newness effect.  Back in 1987, the auto industry was delighted when the year of acquisition was stamped on every car; I am awaiting statistics but I do expect them to confirm that car sales rose at a rate higher than the expected rate.

Now, the auto industry claims that the 131-132 system, which registers new cars in a different order depending on which half of the year they are registered, will 'level out' the year, and make the industry 'less lumpy'.  While this may well happen, it is probable that car sales overall will increase, and this, of course, was their main objective.  The 'new' effect is very valuable in status symbol marketing, and cars are right up there.  Nothing wrong with that, of course, their lobbying worked.  And, from the government perspective, this represents an increase in economic activity in a much damaged sector, where revenues are very significant.

What we are in effect doing, however, is encouraging massive outflows of capital by building non-monetary incentive structures into an import dominated industry.  While the government may be taking in considerable revenues - according to the VRT website, an April 2013 registered BMW 320d SE Touring would cost €12,222 in vehicle registration tax - there is a considerable amount of money that will simply vanish.

Let's presume for a minute that the dealer is going to make €5,000 on the sale of the car, and the government will take it's VRT.  That leaves - rounding a little - €26,000 that will leave the state.  (I don't know if VAT applies on top of VRT for new cars).  There is almost nothing of that €26k that's going to come back to Ireland, unless you count ESF finance, which comes with a coupon attached.  Worse still, where loans are used to buy new cars, there is even more money spent, which accrues to the banks, which again goes back to the debtor countries.

Now, at the same time, we are trying to encourage the use of public transport - particularly in the capital.  Where is the logic for this?  Encouraging people to keep their cars for longer pushes that cash into other areas of the economy.  People who keep their cars for longer, and who drive older cars - as in the US, for example - tend to get them serviced more frequently, pushing money into the services sector.  We are also trying to reduce emissions targets and increase recycling - surely using cars for longer, and not accelerating the cycle of acquisition will help both of these objectives?

So let's change our registration system.  Instead of the year as a denominative marker, use the location.  So instead of one 'D' reg, let's have twelve. Let's break down some of the larger counties, especially those with large county towns - Cork, Galway, Limerick, Waterford - into county separations.  That way the numbers won't get so big.  And then instead of numbering the years, let's register cars in five year blocks - 'A' could be 2015-2019, 'B' could be 2020-2024, and so on.  There will still, of course, be a 'new' effect, but it won't be nearly as pronounced.  Of course it could be minimised further without the year in the registration at all. Each location could be asked to randomly 'letter' bands of 5,000 cars, and encouraged to re-use retired number plates.  So you could have CC (for Cork County), 1234 as the number in the group, and L as the band letter.

In the mean time, incentives should be introduced for those people (based on our statistical analysis) who are likely to have been in the new car market, were it not for this measure, and attract them to investing in more Irish products and offerings.  Art, for example.  That's a status symbol, and we can produce it here.  Along with incentivising artists through tax exemptions, we should incentivise Irish investors who wish to buy Irish art.

Imported Used Cars are an increasing percentage
of new registrations. Source: CSO.

I should also mention that used cars are not exempt from this either (see right, click to enlarge).  The CSO numbers bear this out - in the last four years, the number of used car 'new' registrations has been consistently high, amounting for almost 50% of new registrations in 2008.  These are primarily used car imports, which generate activity in the economy, but again see significant outflows of capital.  Should we discourage people from selling cars too soon, this could increase - two year old cars, for example, may be much more difficult to come by.  One would hope, however, that the general easing of pressure on the age of cars would mitigate this effect.

It seems clear to me that we need to maximise investment of capital in Irish goods and Irish industry.  We need innovation, entrepreneurship, and encouragement to drive more of this.  At the same time we need to look at our incentives and taxation structures and make sure that we're encouraging the right kind of economic activity, retaining capital where we can, and trying to reassert control over our national resources.